Enrolled Agent & CEO of MyExpatTaxes, the leading US expat tax software
Expat tax basics
FATCA, FBAR, FEIE, FTC, Etc. Filing US Taxes from abroad can be simple enough.
As an American abroad myself, I've lived through the very same frustrations. It's why I started MyExpatTaxes, which provides Do-it-Yourself Tax Software and the opportunity to work alongside top Expat Tax Professionals for more complex cases.
Who needs to file
All American citizens and green card holders must submit a US tax return each year if they met the minimum income threshold in the previous year. The minimum income threshold does not change regarding living within or outside the US. So, just like Americans within the state, Americans abroad must file if their income meets or surpasses the limit.
What is the limit?
The minimum income threshold will typically rise each year. In 2023, you'll need to file a US tax return if your 2022 income was at least:
Married Filing Separately: $5
Married Filing Jointly: $25,900
Head of Household: $19,400
All sources of worldwide income are considered when calculating if you meet the filing threshold, including taxable Fulbright Scholarships and Grants (more about that below!).
These filing thresholds usually are aligned to the standard deduction, except for Married Filing Separately (MFS). Those married to Non-Resident Aliens (NRA, aka Non-US Citizens) will typically file under MFS if they are not eligible for Head of Household. MFS is also a common filing status for spouses still living in the US since they might want to keep their taxes separate.
The threshold to file as MFS was lowered to $5 for Tax Year 2018 and remains there. However, the standard deduction amount is the same as Single at $12,950 for Tax Year 2022.
Tip: For those married to an NRA Spouse, remember you do not need to get an ITIN for them to e-file your tax return. You will be able to file as either MFS or Head of Household (HOH) if eligible and can exclude all their income from your US filing. Just remember that if you have joint financial accounts with them, these joint accounts will need to be reported on your FBAR/Form 8938.
In addition, if you have freelancing income (even if only as supplemental income), you will need to file a US tax return if you have more than $400 in net self-employment profit.
Important to know is these limits are for people under 65. Anyone 65 or older will have a slightly higher minimum income threshold. However, for those Married Filing Separately or Self-employed, the limit doesn't change.
Turning 18 will not require your children to file a US tax return. Children similar to their parents need to meet the above filing thresholds to trigger a US tax filing requirement. The only exception is if they have over $1,150 unearned income (i.e., passive investment income) in Tax Year 2022. In this case, they may need to report their unearned income on their parent's tax return or even file their tax return.
Up-to-date filing thresholds can be found here.
Is my Fulbright scholarship or grant taxable?
A scholarship is generally paid to a student at an educational institution to aid in pursuing an academic degree or other studies. On the other hand, a fellowship grant is generally an amount paid to an individual to aid them in pursuing study or research.
Scholarships and grants are only tax-free:
- If you are a candidate for a degree at an eligible educational institution*
- Up to the amount used on qualified education expenses**
- If it doesn't represent payment for teaching, research, or other services required as a condition for receiving the scholarship.
If the above doesn't apply, consider your Fulbright scholarship or grant fully taxable, and it must be appropriately reported on Form 1040.
What forms do you need to file?
Now that you've determined if you need to file, we can decide which forms you should file. Each person's tax situation is unique. Despite that, some forms are more common, specifically for Americans abroad.
Form 1040 – As a US Citizen or Greencard holder, you must file Form 1040, even if living abroad. This form summarizes your total income, deductions, credits, and overall taxes owed and refund amount from the IRS.
Form 2555- The FEIE (Foreign Earned Income Exclusion). One of the most common tax forms that expats use. You can only use this expat tax benefit on earned income sources such as salary and self-employment that is made while you are physically abroad. Scholarship and Grant income that falls into the salary category is also considered "earned" in this sense and applies to this benefit if you are studying and/or working abroad.
Using this form, you'll be able to exclude up to $112,000 of foreign-earned income from your 2022 US taxes.
To use the FEIE, you'll need to qualify as someone who lives abroad full-time through either of the following (2) tests:
The physical presence test looks at how many days you were physically present outside the United States. If you are physically present for 330 full days in a consecutive 12-month period, you can qualify using the physical presence test. The 12-month period doesn't need to be January to December. It just needs to either start or end in the tax year.
- The bona fide residence test is generally the easier test, which applies to any expat who has lived abroad for a full tax year (January 1st to December 31st) and is a registered taxpayer in their local resident country. Digital nomads and international organization employees who are generally not "registered" as tax residents locally cannot use this test.
As most Fulbright recipients start their program in the fall to align with the academic year, the Physical Presence Test is usually the only test available for the first expat year of filing.
Form 1116 – FTC (Foreign Tax Credit). Americans widely use the FEIE abroad to avoid double taxation because it is very straightforward. However, I always encourage expats to consider using the Foreign Tax Credit. One major downside to the FEIE is for parents. If you use the FEIE, you will not be eligible for Child Tax Credits (explained below).
When you live in a foreign country, you can use the Foreign Tax Credit to get credit toward any taxes you may owe to the IRS. Americans living in high-tax countries will see the biggest benefits from the FTC and typically can avoid paying any US taxes. Better still, if you plan to move to a low-tax country, you can use leftover credit towards future tax returns for up to 10 years!
However, this benefit won't do much if you pay little to no income tax in your local country since you can only use foreign income taxes actually paid.
Can you use both? In some cases, using both the FEIE and the FTC could be beneficial. Again, this can boil down to a case-by-case basis, so I always recommend working with tax software or service specifically built with expats in mind!
The FBAR – Officially, it's known as The Report of Foreign Bank and Financial Accounts. Many are surprised to learn that they need to file an FBAR, and others are surprised to discover it's not an IRS tax form. Let's break that down.
First and foremost, the FBAR is generally independent of your US tax return. That should be a big clue for anyone assuming they don't need to file an FBAR because they don't have to file a US tax return. It's a common misconception and not true at all.
Here are a couple more FBAR call-outs:
- Even if you don't need to file a US tax return, you may still need to file an FBAR.
- Even if you don't OWE US taxes, you may still need to file an FBAR.
All right, so who does need to file an FBAR? Anyone who lives abroad and reaches the combined max balance of $10,000 from their foreign financial accounts or assets at any time during the tax year. For example, if you have two foreign accounts and one account holds a max balance of $9,500 in the calendar year and the other has a $700 max balance, you'll need to file an FBAR. It doesn't matter if the account only held that max balance for one day. You still need to file. Also, good to remember that the threshold is based on USD, so remember to convert your max balances using the correct exchange rate if your accounts are in a foreign currency.
Which accounts will you need to report? Any foreign financial accounts to which your name is attached. This could include personal bank accounts, joint bank accounts, foreign investment or retirement accounts, or accounts for your children or company, which you have signature authority over.
How to file the FBAR
Because the FBAR is not a tax form, it doesn't get filed with your US tax return. In fact, it doesn't go to the IRS at all. For this reason, it's often not even offered by traditional tax software. Again, another good reason to look into MyExpatTaxes (we always include FBAR filing) or another expat-focused tax service.
Instead of going to the IRS, the FBAR needs to be filed with FinCEN (Financial Crimes Enforcement Network). It can be submitted directly on the FinCEN website, or if you'd like extra guidance, you can file it directly at www.MyExpatTaxes.com/FBAR.
When to file
Now that we've discussed who needs to file and what to file let's look at when all these tax forms are due.
The 15 April deadline
The standard tax filing deadline for anyone living in the US is April 15th. Because of the weekend and holidays, the official tax deadline this 2023 will be April 18th. Even though expats don't need to file by the April deadline, they will need to PAY any taxes due by this date to avoid late payment fees. We recommend expats who believe they may owe taxes always file by the April deadline to avoid surprises.
The 15 June deadline
Now, for our American living outside the US. The IRS extends an olive branch here by granting expats an automatic extension. You will have until June 15th, 2023, to file your US tax return. You don't need to request this extension. Just file as you would normally and submit it by June 15th. If you're planning to eFile, be warned many traditional tax software programs make eFiling from abroad difficult, or they don't allow it all (when you neither owe taxes nor are due a refund). They may also not include the statement required to get this automatic extension.
If you don't want to eFile, you'll have to print your tax return, sign it, and send it to the IRS office in Austin, Texas. Just make sure it's postmarked by the Deadline!
The 15 October deadline
If, for whatever reason, you won't be able to complete your US tax return by the June deadline. You can request an additional extension. Requesting the extension is usually easy, and most tax software won't charge you extra. You must request the extension before or by the June 15th Deadline by submitting Form 4868 or paying at least $1 via irs.gov/payments as an extension payment.
The 15 December deadline
If for some reason, you still can't complete your US tax return, you do have one more chance. Be warned. It will take some extra work on your part. To request the December extension, you'll need to write a letter to the IRS and explain why you need extra time. For Americans abroad, it typically has to do with waiting for tax forms from their local country, but there could be any number of reasons.
Once you write that letter, print it out and mail it to, you guessed it, Austin, Texas. This letter must be mailed via traditional post. It is not possible to submit it electronically. The letter must be sent by your Deadline (normally October, assuming you have that extension in place).
Never filed? Use the Streamlining Filing Offshore Procedure (SFOP)
If you've never filed your US taxes from abroad, I've got two words for you: Stimulus Checks. Yes! The clock is ticking, but it's not too late to claim all three stimulus payments from Tax Year 2020 and 2021, worth up to $3,200 per single taxpayer.
If that's not enough motivation, I'll remind you that filing a US tax return is your obligation as a US Citizen. It's even written directly in your US passport. Failing to file could lead to hefty fines and penalties.
Unfortunately, many Americans don't realize they need to file until it's too late. For this reason, the IRS has created an amnesty program known as the Streamlined Filing Offshore Procedure. All you need to do is file
- (3) years past tax returns,
- (6) years of past FBARS (if required, but generally recommended)
- and, of course, the current year tax return and FBAR
The Streamlined Procedure is considered an amnesty program because the IRS lets you off the hook for potential penalties for failing to file. This program also allows you to back claim any missed refunds up to 3 years past the due date of a return. The one big caveat is you must Streamline BEFORE the IRS catches up to you.
Child tax credits abroad
In addition to Americans abroad claiming stimulus payments, many also benefit from Child Tax Credits. When filing this year, you'll be able to claim up to $1,500 per eligible dependent under the age of 17 in 2022 with a valid US SSN. If you're getting caught up on your US taxes, you can also claim the previous year's refundable child tax credits.
Tip: If you have used Form 2555 and therefore did not get the refundable child tax credits, you can still amend your 2019-2021 tax returns to revoke FEIE and use FTC instead to get the refunds. 2019 refunds must be filed with the IRS by three years past the due date of that return, so generally, April or June of this year, 2023.
Get your tax refunds
As you can see, between stimulus payments and child tax credits, the refunds can quickly add up. Especially if you're claiming refunds from the last three tax years plus the current year.
The refunds won't be available forever, though, so make sure to file asap if you haven't done so already.